By N Chandra Mohan,
The imperative of generating more productive employment dominates the policy discourse despite optimistic statements that 80 million-plus jobs were created since 2017-18 (July-June). The big question: where are these jobs being generated as there are fewer opportunities for those who move from the countryside to towns and big cities for work? As organised sector employment growth is sluggish, the brunt of adjustment is borne by the low-paying unorganised or informal sector that includes self-employment and casual odd jobbing. Even these opportunities have dwindled, triggering reverse migration, due to shocks like demonetisation in November 2016, the introduction of a goods and services tax (GST), and lockdown to battle Covid-19.
This is indeed a reversal of the process of modern economic development which is associated with a shift in population away from agriculture. To be sure, this shift occurred during the six decades since Independence but the process has been uneven with long periods of stasis followed by a quickening pace and now a movement back from factories to the farms in rural India. The government’s periodic labour force surveys show a substantial increase in employment in agriculture from 44% of total employment in 2017-18 to 45.8% in 2022-23. This amounts to a massive increase of 68 million going back to agriculture. This trend has implications for living standards and deserves policy intervention that rethinks the playbook of development.
India remains “one of the few examples left in the world of an enormous population still largely dependent on agriculture” — to borrow an expression of the late historian Eric Hobsbawm — as less than half of the workforce still lives off the land. In fact, agricultural employment accounted for more than half of the 80 million-plus jobs generated since 2017-18. Informal enterprises accounted for another 45%, with the organised sector absorbing 4%. These jobs are low paying and not as productive or better paying as those in the organised sector. The Budget for FY25 announced schemes to incentivise more employment in the organised sector but these largely will go to businessmen for employing people they would have hired anyway.
The prospects for the organised sector to provide more employment are extremely limited. Hiring more people depends on the demand for products. The warrant for a relook of the process associated with modern economic development — hinted also in the latest Economic Survey — is that it did not pay adequate attention to the fact that the organised sector faces the constraint of market size caused by insufficient effective demand according to Professor Amit Bhaduri, who taught economics to this writer at the Jawaharlal Nehru University. Unless demand improves, capacity utilisation rates will not improve to a point where the organised sector requires additional capacity to accommodate most of the displaced workers from agriculture.
Bhaduri offers a simple numerical example to illustrate his argument. Suppose 100 workers producing 300 units of output (labour productivity is 3) are displaced from small-scale agriculture by the organised sector where labour productivity is 10 times higher. If the market size does not change, and the level of effective demand remains the same, then the same pre-displaced level of output of 300 can be produced by only 10 workers. This implies that 10 workers employed in the organised sector produce the output that can be sold in the market, while 90 become redundant. Effective demand has to improbably increase by the same factor as the labour productivity difference by 10 times to fully absorb the shift of workers from agriculture.
The option of getting employed in the unorganised sector — which is outside the purview of institutional protection — is relatively constrained as it has not fully recovered from the shocks of demonetisation and GST, besides the nationwide lockdown to battle Covid-19. As cash accounts for a bulk of transactions in India, demonetisation struck a body blow to unincorporated enterprises impacting daily wage earners in urban areas as also in the villages. There was no money to pay wages to around 46% of the unorganised workers who were either casual or contractual. Around 65% of daily wage earners went without work in urban areas as informal manufacturing enterprises downed shutters and they returned to their villages.
In this milieu, an alternative policy imagination could consider the possibility of making small-scale agriculture more productive and remunerative. As farming at the margin is getting more unviable, targeted interventions can enable small farmers to diversify from cultivating cereals to growing more fruits and vegetables, fisheries, poultry, dairy, and buffalo meat to improve their incomes manifold. As differentials between country and town narrow, there will be no compulsion to shift from agriculture. The Survey points to an intermediate farm-to-factory transition by encouraging more agro-processing activities. This can be facilitated by the fact that the bulk of rural youth do not want to migrate outside their villages for work, according to a report of Global Development Incubator. Realising the latent employment potential of agriculture makes more sense as this is where the bulk of jobs are being generated in any case instead of viewing modern economic development only as a shift from agriculture to industry and services.
The author is Economics and business commentator based in New Delhi.
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